Zai Lab Limited (ZLAB) Earnings Call Transcript & Summary

Welcome, everyone to the 40th Annual JPMorgan Healthcare Conference. My name is Anupam Rama. I'm one of the senior biotech analyst here at JPMorgan. I'm joined by Priyanka Grover, [ Malcom ] Kuno and [ Campbell ] Smith from the team. Our next presenting company is Zai Lab, presenting on behalf of the company, we have CEO, Samantha Du. I want to remind all the attendees to use the ask a question feature in the portal and I would be happy to ask your question on your behalf. With that, Samantha, take it away.

Thank you, Anupam, and good morning, everyone. It's great pleasure to be with you today. Slide #2 is our safe harbor slide. Now let's turn to Slide #3 please. I would like to begin by telling you who we are at Zai Lab, have been a drug hunter for over 30 years, first in the US, the largest drug market, now in China, the second largest and fast-growing market. In the last 20 years have been involved in a transformative change in China's pharma industry from a generic base to an innovation-driven industry. The Chinese government -- population accounts for nearly 1/5 of the world population and is aging rapidly. The need for innovative medicines in China has never been greater. We at Zai Lab were the first to see that opportunity to broom an unmet portfolio of medicines to China to address this unmet medical need. We rapidly and purposefully seized the ones generation opportunity to build Zai Lab into a bipharmaceutical leader, first in China, then around the world. We build our business around 4 key elements; a biotech minds right, pharma quality, Zai Life speed and global talent. If you don't remember anything else from this presentation today, please remember this. Zai Lab has already been a leading fully integrated biopharma in China since its inception in 7 years ago. We leveraged our China strength to become a leading global biopharmaceutical company. Slide #4, please. This slide highlights what we have accomplished in just over 7 years. We had built a portfolio pipeline of 28 products, including 11 that were internally developed and have global rights. And our -- and 4 that are now marketed in Greater China. We have achieved all of these things in such a short period of time. You see here various measures of our rapid growth and substantial size, but what were most product is not the quantity of our pipeline, but the quality. They are all potentially first-in-class and/or best-in-class in areas of unmet needs around the world. This year, we significantly strengthened our portfolio with new assets and capabilities from 8 new partnerships and made meaningful progress and cause our existing pipeline and our commercial execution is off to a great start with strong momentum, fairlife's fundamentals are stronger than ever. Now next slide -- next slide, please. We have built a solid foundation for continuous growth with patients always at center. We have delivered a deep and diversified portfolio, develop a fully integrated platform to accelerate innovation, all of which is underpinned by our talented global team. Our leading portfolio consist of products with large market potential and our assets are substantially de-risked because most of them have already achieved proof-of-concept, many have generated impressive pivotal data. We purposefully build our portfolio to achieve a leadership position in our DG strongholds to maximize inter pipeline synergies. Our platform is fully integrated from early discovery to PB right through to commercialization. Our R&D capabilities are science-driven and have enabled Zai Lab to build a world-class pipeline in just over 7 years and our people are highly experienced with global expertise in both the US and China. Slide 6, please. Our portfolio of products has unmet potential in China, organized around therapeutic areas of cancer, autoimmune disorders, infectious diseases and neurological disorders. We're focused on differentiating asset addressing large patient populations with unmet needs in China. You can see that we have a world-class portfolio in PI and lung cancers, the 2 largest tumor types in China. For example, bema is a potential first-in-class FCGR2B inhibitor with a significant market opportunity in China, as the graph has demonstrated compelling efficacy and favorable tolerability in non-small-cell lung cancer and colorectal cancer. In other therapeutic areas, Zai Lab has also complicated -- have also accomplished a lot, ZL-1102, an internally developed compound has the potential to be the first IL-17 topical treatment for global patients with mild-to-moderate plaque psoriasis. Efgartigimod is a true pipeline of product and a potential first-in-class and best-in-class FcRn therapy across many severe autoimmune diseases. Slide 7, please. Our pathway to significant and sustainable growth is very visible. We expect to launch about a dozen new products by '25 for a total of more than 15 products in more than 35 indications. They also have potential not only as monotherapy, but the proprietary combinations that we are testing in clinical development. And what's not visible here are the products that will aide in through our in-house research and business development year-after-year. For example, 6 of the assets shown here were acquired through in-licensing last year. Our opportunities to develop and bring in new assets are as strong as ever. Slide #8, please. Our fully integrated infrastructure produces a flywheel effect with each segment supporting the others. Our deep scientific and therapeutic area expertise has created a very productive discovery engine, the same internal and external expertise drive how we evaluate and seize new business development opportunities. Our steady stream of new product candidates from both discovery and BP can quickly enter the market through our leading development and regulatory operations. This progress in turn, drives our track record of commercial success, which will accelerate as we achieve synergies through our disciplined therapeutic area strategy. And our commercial success help us build relationships with KOLs to give us insight in discovery and development, as well as help us further evaluate and pursue future business development opportunities and so on, the results is a virtuous cycle. Slide #9, please. Many of you know us as the partner of choice in China with the most finest product pipeline. What you may not know as well is our internal pipeline. We started our internal discovery effort a little over 5 years ago, combining internal effort with an open innovation model, our initiative, nimble and efficient discovery effort both in China and the US working together as a single integrated team and collaborating with leading academic institutions and biotechs has generated a pipeline of 11 assets with global rights. Our strategy for our internal R&D is to prioritize those programs that are synergistic with our late-stage portfolio. Next slide, please. Let's look at our one promising candidate from our internal pipeline, ZL-1102, which is a small ITT fragment directed against IL-17. In a proof-of-concept study, topical applied ZL-1102 achieved approximately 45 relative improvement in local PASI score at the end of 4 weeks. The responder rates show a similar pattern of consistent benefit persisting even after the end of therapy. The AE profile with topical 1102 was the same as for the control group. Regional transcription analysis show that level 2 greatly affect the gene expression profile, various immune simultaneous -- stimulative genes were differentiated -- were differentiatedly downregulated, as well as genes for keratinocyte differentiation, immune response pathways and L6. These fundings are truly noble as they shatter the dogma that skin is impermeable to molecules with the size of biologics. We plan to advance the level to into full global development later this year. Next slide, please. It's not just the quantity of the clinical trials, but the quality and speed with which our talented clinical team carry out their work. On the left, you can see examples of their expertise in leading the design and execution of various painful trials. On the right are few examples to support our reputation for unmet speed in clinical development such as side immunization and patient enrollment and regulatory part approvals. For patients around the world, every day say in clinical development and regulatory approval is a day closer to improve their health. Next slide, please. You can see that our BD team continues to bring in products in accelerating speed despite strong competition for good assets. Going forward, we will leverage our BD capacity continue growing best-in-class and first-class products for patients both in China and globally, will bring in the technology and expertise needed to accelerate our in-house research efforts. Slide #13, please. Here you see from a commercial perspective, here are the 4 products we have launched to-date in Greater China, where we are achieving expanded patient access for these products through different strategies including the NRDL or self-pay plus supplemental insurance. Our sales force has a substantial presence across China's hospital system. Our sales growth has been strong with momentum that we expect to continue in 2022 and for many years to come. Slide 14, please. Clearly, the environment in retail products launch is key to their successful commercialization. From my perspective, it's clear that Chinese government strongly supports the development and commercialization of innovative drugs. For example, the Chinese government has made innovative life science as one of its pillar industries. China continues to harmonize it's intellectual property law with global standards. A rapid number of NDAs are being approved for innovative drugs, any new NRDL updates provide broader access to innovative drugs, shortening the time from approval to NRDL inclusion. The CDE is encouraging, clinical-driven, clinical value-oriented innovation and self-pay plus supplemental insurance is growing rapidly. We are encouraged by these positive developments and as industry leader, we intend to take full advantage of them. Slide 15, please. Among the things I'm most proud of are our leadership team and our results-oriented culture centered around creativity, diversity, collaboration and teamwork. Our strengthened R&D team prepares well to harness global innovation. Our expanded commercial team will continue to drive sales and marketing leadership in China. Corporate functions continuously improve our position in financial, regulatory, compliance and ESG issues, et cetera, especially those involving China and the US. Next slide, please. We expect to complete a lot in 2022, which will put us well [Technical Difficulty].

Samantha, I believe that you're frozen.

Yes. Anupam, why don't I step in here.

Yes. Go ahead, Billy.

Yes. So I think she was saying, we expect to accomplish a lot in 2022, which will put us well on the track to reach our stated goal of leading the next wave of biopharma innovation globally by 2025. So first, we will speed medicines to patients by accelerating important data readouts and regulatory filings across our entire portfolio in pipeline. And here, we've listed just a few of the key '22 milestones to watch out for. Second, we will expand our pipeline with potentially transformative assets and partnership opportunities and continue to advance that global pipeline. Lastly, we will take a big step forward, becoming a global biopharma leader by leveraging our leading position in China, accelerating our large and growing revenue base and maintaining a strong balance sheet and our position in global capital markets. Turn to 17, Slide 17, please. So in conclusion, I'd like to return to what we said in the beginning. Now Zai Lab's mission is to bring innovation to China and to the world. We are already a leading biopharma in China and we will continue to strengthen our leadership in China. We will leverage our China strength to expand and become a leading global biopharmaceutical company. Thank you. And now Zai's leadership team would be happy to answer your questions.

Billy, if you want to just introduce the broader team on the line, we can get started with the Q&A portion here.

Happy to. So on the line with us is Alan Sandler, our Head of Global Development for Oncology; Harold Reinhard, Head of Global Development, Neuroscience, Autoimmune and Infectious Diseases and Tao Fu, our Chief Strategy Officer.

[Operator Instructions] Maybe we'll start out, Billy, with Zejula and now you have frontline NRDL approval now secure. What are the pricing and launch dynamics we should be considering for 2022? Longer-term, one of the questions that we get is how you think about Lynparza patent exclusivity and how that might impact outer-year sales?

Yes. Thanks, Anupam and happy New Year. So we're pleased with the outcome of the 21 NRDL negotiations for Zejula and as we're in January '22 implementation has already started. Now there are 4 PARP's, so this pricing will provide us a rational basis to really build from here. Of course, we have a natural advantage due to our unique label as an all-comer -- as the only PARP first and the only PARP with an all-comer label in frontline. So despite the much -- which means that we're going to have a pretty significant opportunity, more compared to the competition. So on one hand where the other entry is going to build up awareness for PARP asset class, but on the other hand, we have -- we're the only one with this clear and unique advantage due to the label. Now, we believe all of this will set us up very nicely for a solid ground of growth momentum to continue in '22. We expect the size of the asset class to increase as the penetration continues over the next several years. Within that, we also expect to build a market share or leading market share position pretty quickly, likely within this year or next. And we're confident and optimistic for this strategy. In terms of your second part of the question, if generics launch after Lynparza patent expiry, I'd like to just highlight that ZEJULA will still enjoy the broadest label advantage as the only PARP inhibitor covering first-line all-comer ovarian cancer, and it's also already a reimbursed drug.

Got it. We've got a question in the portal here. Given the 4-front focus for QINLOCK, can you please share what we think the potential of this drug is? And what are the main hurdles for unlocking this market? What gives you confidence in the diagnosis rate of this condition and what are your 2022 expectations for QINLOCK?

Alan, do you want to comment on this one?

Yes. I'll talk out to the clinical relevance of this. I think that we remain very excited and enthusiastic about QINLOCK in the fourth-line setting. I think there's a precedence in China as far as testing. I'll start with that first, that as drugs become available, the testing required to identify those patients goes up rapidly. We've seen that in non-small cell lung cancer with the EGFR area. Also, we're seeing it in ROS1, et cetera. So it's sort of an if you build it, they will come. And in addition to that, we believe that the market itself will expand in the fact that, again, that you have effective therapy in that fourth-line setting, that will also cause physicians to initiate therapy potentially earlier and identify a broader patient population than is what currently is anticipated. This, again, is something that has happened historically on oncology across multiple diseases and indications. As there's effective therapy, physicians tend to switch to that therapy earlier, therefore, identifying more patients who have access to that therapy.

We've got another portal question here. What are your expectations for LYNPARZA LOE in China? Given its approval in first-line BRCA, should we expect it to be a meaningful competitor to ZEJULA?

Yes, I mean, Anupam, the Lynparza was -- was the third PARP to launch. The market opportunity is quite significant. And they were the first-in-class to enter the market. And they've spent a lot of resources building up awareness. But of course, when we came in with, again, a unique label as a first and only PARP inhibitor on first-line all comers, I think we expect to continue to drive this momentum and have market share leadership. So kind of net-net of it all, I think what you typically see whether it's in US, Europe or China, for that matter, if you introduce innovation into market space, the first and second-in-class is positioned well to have a pretty sizable position. Within that, we think that ZEJULA has already been positioned as the best-in-class PARP inhibitor. So again, reiterating my previous comment that we have confidence in driving market share leadership within this year or next year.

Maybe, actually, we have another portal question. Can you guys comment on the commercial growth strategy of the newly licensed product, KarXT in China? Historically, sales of antipsychotics in China have not been great.

Yes, Harold, do you want to maybe comment a little bit about KarXT and why it's such an important drug for this therapeutic area and in China? And maybe I can follow it up with some comment on the commercial opportunity. But Harold, you're on mute.

Yes. Thank you for the question. And indeed, this is a new area for us at Zai, but it's also a very unmet medical need area worldwide. And one of the things why we are excited about this drug, which is currently in Phase III with readouts coming out in the middle of this year is the fact that in schizophrenia, which is by no means rare, it's actually very frequent all over the world, 2% at least of the population. That -- the patients with negative symptoms are usually not well served. Those patients who have cognitive problems, those patients who have the negative symptoms are those that currently are not well treatable with antipsychotic medicines. And those antipsychotic medicines currently in the market and there are many of those. They are usually addressing the dopaminergic and the serotonergic transmitter substances. Having said that, they also have a whole slew of side effects, and they are very difficult to take. So getting back to your question, we believe that a differentiated drug, which doesn't come along with weight again, that doesn't come along with extrapyramidal symptoms, it doesn't come along with tardive dyskinesia and things like that, is a very welcome addition to the armamentarium in China as it is in new cells. As far as the commercial fee maybe, Billy, you can talk.

Yes. I will chime in here.

Thanks. But I think the patient numbers alone and the unmet medical needs, which currently are also shown by the high dropout rates on current treatments give this a very big market potential.

Yes. Schizophrenia, in particular was a great segment to enter. First of all, as Harold mentioned, the patient pace is quite significant. It impacts over 8 million Chinese population, 4.3 million of whom are already registered cases in the national management system as having severe mental illness from schizophrenia. But really, what lies at the heart of this is that there's just been a lack of innovation. So with limited efficacy and safety profile of current therapies, long-term treatment is required and needed. And also safety, therefore, is critical in maintaining compliance with the treatment option, if you have, the right innovation. And lastly, in terms of the market access strategy, the market is quite concentrated as we've seen in oncology and severe autoimmune disorder, et cetera. So that's a little bit different from the US in that regard. So -- and Harold already commented on the clinical profile and why we're excited. But I'll just kind of reiterate that neuroscience is the fifth largest therapeutic area in China, expected to grow in a very robust fashion over the next several years. Within neuroscience, antipsychotic market, in particular, is the largest segment. And also within the published guideline with a Healthy China Action Plan in 2019 to 2030, they've set a national goal, a clear goal to improve the treatment rate for registered schizophrenia patients to 85% by 2030. So, we're pretty excited with KarXT to improving disease awareness and driving good patient outcomes.

Maybe a question for me. On the monotherapy sort of refractory KRAS G12C that's been filed here in the U.S. for adagrasib, when might you have more feedback from Chinese regulators on if a largely ex-China data set would be sufficient for approval, much like the OPTUNE, ZEJULA experiences that we've all kind of been privy to?

Yes. Maybe I'll give this to Alan. But you're right, it's been filed in the US for second-line non-small cell lung cancer. I think we're waiting for acceptance. But maybe Alan can comment about that.

Yes. There -- I mean, a couple of things to mention is, of course, we're looking forward to adagrasib, which, of course, has the opportunity to be both first-in-class and best-in-class in China and we remain in very close communication with the NMPA along the regulatory pathway. And we're working with our partner, Mirati, very closely with this, and we'll continue to provide information as that becomes more and more available, but we're extremely enthusiastic about this novel agent.

One other pretty common question that we get is there are more and more companies popping up regionally with a similar focus to Zai Lab and building a pipeline via BD. And I guess the question is, how has that impacted sort of partnership discussions and negotiations, competition for assets? And how do you kind of think about making sure you don't overpay for an asset?

Maybe I'll take this one.

Yes.

Anupam, good to see you. Thanks for the question. As you know, we are the pioneers of the licensing strategy in China, and we have firmly established Zai Lab as a part of choice for innovative assets. And we continue to build on that leadership position. Looking at our BD track record, we have done more quality deals than any other Chinese companies since our IPO in 2017. In particular, in 2021, we arguably won all the top assets, including efgartigimod, adagrasib, 2 of the top 10 global biotech assets. There was significant competition for those priced assets. We expect to maintain our competitive advantage because of our strong track record of execution. We have taken global assets, developed them in China, obtained regulatory approvals and launched them successfully. We have done that 4 times already. And really no other company has that track record. We have proven to our partners again and again with our strong execution. We help them develop their assets with high quality, and we help them accelerate global development. To a lot of our partners, that is more important than financials. I would just comment that our BD pipeline remains to be robust, and we expect to have another great year to use business development to grow Zai Lab.

Maybe a final question for me here. I don't see any questions in the portal. But as a reminder, if you want to me ask one, just put it in there. But as a final question for me, one of the things that we've been hearing because of the 2021 experience is how do I wake up in the morning and there isn't a headline about China and something that pressures the entire Chinese sector, including Zai Lab, health care or not, right? And so I guess there's a very broad question. But what are the potential regional risks that we should be monitoring in 2022, given one of the big fears on the Street as it relates to Zai Lab is waking up the macro headlines and that causing volatility?

Yes, Anupam. Maybe I'll start this one. Yes, I mean, as Samantha presented in her slide, I think it was Slide 14 or so, China is, we believe a still encouraging biotech as one of the main pillar industries with increasing support. And so we're quite optimistic in the long-term fundamental opportunity and that we think that we're best positioned to capitalize on that. So for example, she spoke about the -- and we can go with a little bit more of the details. But for example, from the regulatory agencies, the CDE draft guideline that came out on July 2nd, which really raised the bar for innovation and drug development. BeiGene also recently renewed their ICH governing membership status, and that comes, of course, on the national government level and it continues to show a strong commitment to harmonize with global standards. China's 14th 5-Year Plan has a very strong focus on innovation to promote the integration and innovation about technology, and to accelerate the development of the sector. And also, you see the ripple effects of that by the continued robust number of approvals coming in from the NMPA, finding ways for the NRDL deal to improve market access and getting more drugs reimbursed and then the CDE draft guideline that I just mentioned, the ICH, et cetera, et cetera. So, there's been a relative consistency that we see and we think that, that will continue. And it's just also important to remember that our industry is already one of the most heavily regulated sectors, unlike other areas that you may have seen and heard of. So, we see a very clear path and opportunity for us into the future and therefore, we have calibrated our strategy accordingly. And the key focus is to make sure that we have a broad and the most differentiated pipeline, and we think that will be the defined foundation to become one of the leading biopharma companies in China and then using that advantage. And we're already a large -- we've already accomplished that to become a global player. So again, in closing, we're very encouraged by these positive developments. And as an industry leader, we intend to take full advantage of them and we're building Zai Lab today to be the largest contributor and beneficiary to this generational trend that we see.

We've got a couple of e-mail questions that just came in, which are what are the top 2 or 3 data cards that we should be focused on this year? And what does Zai Lab look like in 5 years? What are you targeting in terms of peak sales in China?

Yes. I think I can probably answer that question in one kind of integrated comment. So again, as Samantha highlighted or when I stepped in, she right now just got back to Shanghai. And so we -- our priorities for this year and beyond is to really make sure that Zai Lab has the highest probability to become a leading -- to be leading the next wave of biopharma innovation that we see and then to also leverage our unique kind of platform in China and beyond. So when you look at how to accelerate medicines to patients, we called out some selective milestones for 2022 that could be highly relevant. Efgartigimod, not only the filing of the gMG in China, but also the Phase III data readouts of both ITP and subcu gMG. For KarXT, we have 2 Phase III data readouts this year, EMERGENT-2 and 3 studies in schizophrenia. In tumor treating fields, we have Phase III LUNAR data readout by end of the year and also gastric that we ran separately. We have bemarituzumab that's going to initiate a Phase III study in gastric cancer that could be a very important drug. We have the IL-17 program, where Harold and his team is going to meet with the US FDA, as well as other agencies around the world and go into full development. And we're also advancing our other global programs and also looking to expand the portfolio with potentially transformative assets and partnerships. And all of this, we believe -- and we're going to have a very busy year in '22 as we have in the past. We think that's going to make us or give us an opportunity to make a one big significant step forward to building a global biopharma leader. So that means, again, in short hand, to leverage our leading position in China, giving us an opportunity to branch out globally with a much better risk return profile and speed, a means to accelerate our large and growing revenue base and sourcing innovation and having financial flexibility underpinned by a strong balance sheet and really establishing ourselves as one of the international biopharma of bellwether with liquidity and whether it's in ADRs, ordinary shares around the world -- that's traded around the world.

Very quickly, 30 seconds, 2 quick ones. OPTUNE peak sales in GBM, how do we think about that? And what ORR do you need for repotrectinib in the front line for it to be meaningful?

Yes. I'll give the second question to Alan. But we're not yet giving guidance on GBM for OPTUNE, but we have some very -- I mean, I'll keep it very punchy. One of the strategy we have last year and continuing this year and beyond is to expand supplemental insurance coverage. So OPTUNE is the first and only medical device covered by supplement insurance, which we think is going to be a meaningful payor in the future. And we already have been listed in 33 plans since launch. So, we expect to continue to focus here and build that up. And that's just GBM, and we want to really position it as a standard of care. And as the other broad indications also come across, that's going to allow us to really double down on tumor treating fields for the future. Just like to -- just to remind the audience that the other late-stage studies that are underway, you're talking about one million to 2 million additional new patients per year in China, including non-small lung cancer, ovarian, pancreatic, gastric, et cetera. And Alan, I don't know you have any comments on repotrectinib?

Yes. I just think that -- I know we probably only have a couple of seconds now at this point. But I think that continued repo has done remarkably well across both the chemotherapy naive setting and also the previously treated setting. I think if it maintains those numbers are very likely to achieve the goal of approval, accelerated approval across multiple potential indications. It has a wonderful safety profile as well and blood-brain penetration.

Okay. Samantha and team, I want to thank you guys so much for taking the time. And we'll just end the session.

Sounds good. Thanks, Anupam.

Thank you.

Thanks, Anupam.

Thank you.